Immigration and Fiscal Policy

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Who Frets Most About Student Debt

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The Case for Women

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Yes, We Have No Inflation

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When Fed Transparency Fails, Go Zen

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Stronger U.S. Growth Ahead

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

While recent stock market gyrations betray investor concerns over the resilience of the recovery as the Fed contemplates the end of easy money, the prospects for growth in the United States look brighter not much further ahead. There are always risks and challenges that could derail an optimistic forecast - some of them are highlighted below - but four powerful forces coming together over the next year are poised to support stronger growth and job creation. These positive drivers are lasting benefits from immigration reform, expanded energy production and exports, the long-awaited housing upturn, and an increased measure of certainty in the financial industry as the main elements of the postcrisis regulatory overhaul fall into place.

Immigration

The politics of immigration reform remain uncertain, but the economic benefits are clear and vast (a point made last week in this space by Simon Johnson).  People are the essential raw ingredient for America's economy, and immigration reform means more of them will work and contribute to our society - in the sunlight rather than the shadows.

As estimated by the Congressional Budget Office, immigration reform would translate into job creation, business and household spending, and higher tax revenue that would offset attendant costs. The calculus improves o ver time, with the benefits widening as future generations blend into and renew the United States. Immigration reform would allow more foreign graduates of our top universities (including my institution, the University of Maryland) to stay and contribute rather than leaving the country.

Past generations of immigrants played key roles in entrepreneurship and innovation in tech hot spots like Silicon Valley, and there is every reason to expect a similar dynamic going forward.  The political reality is that the benefits from high-skilled immigrants are connected to a policy that addresses all immigrants, not just those with degrees.  The economic positives are too big for policy makers to leave on the table.  And if nothing else, the demographic imperative of the future electorate provides an offset to present-day political qualms.  I see immigration reform as a bipartisa n achievement for this Congress and an economic boon for the nation.

Energy

Expanded use of technologies like hydraulic fracturing, or fracking, and horizontal drilling for extraction of oil and natural gas have contributed to increased domestic energy production that has added to output and job creation. The immediate benefits are seen in the booming economies of shale-laden states like North Dakota, but Americans stand to gain more broadly from lower energy prices and from higher incomes generated by energy exports. While private-sector actions so far have been the key to unleashing the energy revolution, decisions by the federal government and individual states are likely to increase production and further strengthen the economy over the next several year s.

The Obama administration has already approved expanded exports of natural gas, which in turn would be expected to foster domestic production.  A crackdown on coal-fired power plants as part of the president's climate action plan announced on Tuesday will add incentives to generate electricity with cleaner-burning fuels like natural gas. According to the 2013 Economic Report of the President (Figure 6-3 on page 196), the shift in this direction already accounted for 40 percent of the reduction in the nation's carbon dioxide emissions from 2005 to 2012. Other policy decisions to allow increased natural gas production will be made at the state level. Even those states that have held fracking at bay, such as New York, seem likely to com e around as environmental concerns are addressed.

As with immigration, the economic stakes are too high to ignore, with the possibility of hundreds of thousands of jobs and billions of dollars of tax revenue (these figures are from a study sponsored by interested parties but carried out by a reputable economic consulting firm and seem reasonable as an order of magnitude of the potential benefits).  An early indication of the economic attraction can be seen in California, where the State Assembly recently declined to move forward with anti-fracking legislation. 

Expanded oil-related activities involve similar economic considerations, though the politics are trickier because President Obama faces determined opposition from his political supporters to the expansion of drilling and the construction of pipelines like the Keystone XL that would transport Canadian petroleum into the American refining and distribution system. Even so, the president in his climate address hinted that the pipeline would be approved, and presumably similar economic calculations would factor into other decisions, like speeding up federal approvals of drilling applications.  Expect such announcements to trumpet “unprecedented” (a favorite word of this White House) environmental safeguards.  But energy production will increase, with state and federal governments increasingly supportive rather than wary.

Housing

The signs of the housing revival are now widespread, with gains over the past year in home prices, sales, and construction starts for both single-family homes and apartment buildings (the Department of Housing and Urban Development provides a monthly update of housing information and administration policy efforts).  The foreclosure rate remains elevated nationally but has generally declined since the peak in early 2010, leaving fewer empty homes and distressed sales to hold down housing prices.  Rising home prices likewise have left fewer families underwater on their mortgages (owing more than their homes are worth) and thus a smaller number at risk of losing their homes.  

The uptick in housing demand from the gradual job market recovery will be joined by a powerful demographic trend, as millions of Americans who doubled up with roommates or stayed in their parents' basements move out to form new households. To be sure, housing activity has not returned to the bubble levels seen before the financial c risis, and the recovery is proceeding unevenly across the country.  But the upswing is palpable and poised to continue.

Financial Sector Regulation

Finally, increased regulatory certainty will translate into a financial sector that more effectively fulfills its role of connecting the savings of Americans and others around the globe with productive investments. Lending conditions have eased since the financial crisis, but credit remains tight in parts of the economy, notably for small businesses. These hiccups are by far not a result of tighter regulation alone - and a new regulatory regime was badly needed after the financial crisis. But many of the provisions in the 2010 Dodd-Frank financial regulatory reform legislation required federal regulators to spell out regulations, and this vital work has lagged. 

The June 2013 progress report from the Davis Polk law firm reports that only 153 of 398 required Dodd-Frank rules have been completed while 128 have not yet even been proposed for comments. Still, important progress has been made, notably in setting up the Consumer Financial Protection Bureau and bringing greater transparency to derivatives trading (including work to improve derivatives markets begun at the New York Fed under Timothy Geithner before he became Treasury secretary in early 2009). 

Financial firms might not like the added regulations (and whether any such complaints are justified is a topic for the future), but they will adapt once the rules of the road are clear. By next year, regulators will have spelled out additional rules for derivatives activity, bank capital requirements, the enhanced prudential regime for large ban ks and other systemically important financial institutions, and possibly the Volcker Rule that will determine allowable bank activities.  The Federal Deposit Insurance Corporation is making progress putting together its new approach to dealing with the failure of systemic financial institutions.

Not every rule will be settled, but considerable progress is near - more than is apparent than from a simple count of outstanding regulations.  Some of the Dodd-Frank provisions could stand to be improved (and I am co-director of a project aimed at doing just that), but having the main ones finally in place will help relieve lingering credit market strains and provide a meaningful boost to the financial sector and the overall economy.

Other Factors

To be sure, key economic challenges remain to be tackled. Tax reform could contribute to economic growth and simplify the tax code while maintaining progressivity. Entitlement reform is needed as part of an approach to addressing the government's looming fiscal imbalance.  The start-up of the Affordable Care Act looks rocky and its long-term effects remain uncertain. Drag from chronic ills in Europe and the possibility of a slowdown in China could likewise affect the United States.

All of those risks are out there and more. But the four positives of immigration, energy, housing, and financial reform represent powerful forces that will boost the economy over the next year and beyond.  A revival of solid growth after six years of recession and slow recovery would give Americans confidence in their prospects for finding a good job and moving up the economic ladder.  Better growth, moreover, would provide a more conducive political and social environment in which to tackle some of the l onger-term economic challenges facing the United States. These possibilities make the policy decisions on immigration reform and energy all the more important.

A World of Rising Health Care Costs

Americans are used to hearing that health care will bust the budget. The Congressional Budget Office projected last year that Medicare, Medicaid and other government health programs would eat up 9.6 percent to 10.4 percent of the nation's gross domestic product by 2037, crowding out many other vital programs.

But a new report from the Organization for Economic Cooperation and Development suggests that the United States is not the only country that will struggle to contain public spending on medical care. In fact, costs are likely to increase slightly less in the United States than in other industrialized countries and some big developing countries around the world.

Public spending on medical services has slowed much more sharply in other countries since the financial crisis hit government budgets around the industrial world. Government health expenditures across the O.E.C.D. grew only 0.1 percent in both 2010 and 2011, on average, after growing 4.9 percent a year between 2000 and 2009. In Greece they plummeted more than a quarter over those two years. In Britain they contracted by 2 percent. In the United States, by contrast, government health spending grew 3.3 percent in 2010 and 2.2 percent in 2011.

Source: Organization for Economic Cooperation and Development Health Data 2013

But health spending is expected to pick up as the economy recovers. The organization lays out two possible paths. In one, health care costs keep rising at the pace of the last decade or so â€" powered not only by growing incomes and the aging of the population but also by rapid medical inflation, technology advances and more intensive delivery.

Source: Organization for Economic Cooperation and Development

Along the other, unspecified policy changes â€" perhaps like the Affordable Care Act - manage to slow spending to what would be justified by aging and income only.

Source: Organization for Economic Cooperation and Development

If it is not contained, government spending on health will rise to almost 12 percent of G.D.P. on average across the 34 O.E.C.D. nations, from 5.5 percent in the second half of the last decade. In the United States it will rise to 13.2 percent from 7.1 percent.

And in some poor developing countries, it will rise even faster. In China, for instance, health spending would rise to 8.3 percent of G.D.P. in 2060 from 1.9 percent in the second half of the 2000s.

Budgets will be easier to meet if health spending is tamed. Under the assumption that this happens, the O.E.C.D.'s public budget for health care eats up only some 8 percent of the economy by 2060. In the United States it takes up 9.3 percent.

But nothing, it seems, will stop pu blic spending on health care from rising.

The Myriad Benefits of a Carbon Tax

Laura D'Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

Few goals in Washington have more bipartisan support, at least in theory, than cleaning up the tax code. Repu blicans and Democrats say they want a system that is simpler, fairer and more efficient. Put simply, they want a system with fewer special tax breaks and lower rates.

Yet one of the best ideas for advancing all of those goals â€" and also heading off catastrophic climate change - isn't even on the table. I refer to a carbon tax, which would impose a price on emissions of carbon dioxide and other greenhouse gases.

Most climate experts concur that dangerous climate change is occurring at a more rapid rate than expected. They also agree that the deterioration in the earth's climate is primarily a result of carbon emissions from fossil fuel consumption by humans. If you dispute the overwhelming scientific consensus about man-made climate change and the role of fossil fuel emissions, you should probably stop reading now. Evidence is unlikely to affect your opinions.

But if you accept this consensus, you should know that economis ts across the political spectrum agree that a carbon tax is the most effective way to discourage carbon consumption and lower the risks of catastrophic climate changes.

I am convinced by the environmental case for a carbon tax. But I want to make a broader argument: a carbon tax could be an engine for tax simplification, deficit reduction, less government regulation and even increased competitiveness.

To be sure, the environmental urgency alone is compelling. In May, atmospheric concentrations of carbon dioxide reached nearly 400 parts per million. When concentrations were last that high â€" more than three million years ago - humans had not yet appeared, the world was warmer by 3 to 4 degrees Celsius, and sea levels were 80 feet above where they are today.

United Nations negotiators have set a limit of 450 parts per million to prevent costly and irreversible changes in the earth's climat e. At current emission trends, the world will cross this limit in a matter of decades.

The anecdotal evidence of climate change is everywhere: melting Arctic ice, new migration patterns for plants and animals and extreme weather events including record droughts, heat waves, epic floods and super storms. The frequency, intensity and costs of such events are increasing at an alarming rate. Climate scientists have moved from the view that such events are consistent with climate change to the view that climate change significantly increases the odds of their occurrence.

Economists have long contended that a carbon tax is the most effective and simplest way to reduce carbon emissions. Conservative supporters include Gregory Mankiw, a former economic adviser to President George W. Bush, and George P. Shultz, who was secretary of state under President Reagan. Economic centrists include Alan Blinder of Princeton and Robert Frank of Cornell University. Further to the left are the Nobel laureate Joseph Stiglitz and Robert Reich, former secretary of labor. James Hansen, NASA's former top climate scientist, is also a vocal champion of carbon taxes. So is former Vice President Al Gore, who has advocated carbon taxes for the last 35 years as the policy most likely to be successful in combating carbon emissions.

The beauty of a carbon tax is its market-based simplicity. Economists since Adam Smith have insisted that prices are by far the most efficient way to guide the decisions of producers and consumers. Carbon emissions have an “unpriced” societal cost in terms of their deleterious effects on the earth's climate. A tax on carbon would reflect these costs and send a powerful price signal that would discourage carbon emissions.

Producers and consumers would adjust their behavior in response to this signal in ways that are most efficient for them. And these efficient micro decisions would support efficient societal outcomes.

There's much debate about what the proper “social cost of carbon” might be, but there is no debate that carbon emissions are seriousl y underpriced. Any tax on carbon would be an important step in the right direction, and it could be gradually increased to give consumers and producers time to modify their decisions.

Without a tax, the government has to rely on second-best regulations to limit carbon emissions. Facing Congressional inaction and staunch opposition to a carbon tax, this week President Obama proposed regulations on carbon pollution standards for new and existing power plants using his executive authority under the Clean Air Act.

A carbon tax is also a cheaper and often more efficient way to reduce carbon emissions than subsidies for alternative fuels. Generous subsidies for biofuels have cost billions of dollars; by reducing the price of gasoline they may have perversely increased rather than decreased carbon emissions.

Other subsidies, like the production tax credit, have been successful at ramping up research, development and deployment of alternative energy technologies in recent years. Such subsidies would be even more effective in combination with a carbon tax that would make fossil fuels less price-competitive and would stimulate research on renewable and energy-saving technologies.

The Congressional Budget Office estimates that even a modest carbon tax could reduce both greenhouse emissions and the federal budget deficit. A tax of $20 per ton of carbon dioxide, which would translate to about 15 cents per gallon of gasoline, would reduce emissions by 8 percent and generate up to $1.2 trillion in tax revenues over 10 years.

None of this is controversial to economists. As Professor Mankiw remarked a few years ago, the basic argument for a carbon tax “is so straightforward as to be obvious.”

Politically, of course, it's anything but obvious. Republicans and Democrats fear that a carbon tax would antagonize voters by raising the prices of products with fossil fuel content for everyone who uses them. Republicans worry that a carbon tax would be a source of government revenue to feed “big government spending.” Democrats worry that a carbon tax would be regressive.

Both objections are easy to address. The revenues from a carbon tax do not have to be used for more government spending; the tax's burden on low-income families can be offset by targeted income support measures, like those used in other countries to offset the regressive effects of value-added taxes.

Adele Morris at the Brookings Institution estimates that diverting just 15 percent of the revenues from a $16-per-ton carbon tax would provide enough money to keep low-income households whole. The remaining money could be used to finance a substantial reduction in corporate tax rates and reduce deficits by $815 billion over 20 years. Government spending would not increase.

Put another way, a carbon tax can be a central pillar of tax reform and sound fiscal policy. If a carbon tax were used in part to replace other forms of taxation, it would be a major force for tax simplification. It may seem like a “liberal” initiative, because its core purpose is to slow climate change. But a carbon tax also bears a strong resemblance to the kind of flat, broad-based tax on consumption favored by many conservatives.

Opponents of a carbon tax, and of climate-change legislation in general, often assert that it would put the United States at a competitive disadvantage. They usually point to China, the world's biggest emitter of greenhouse gases (the United States is in second place and not far behind).

The competitiveness objection to a carbon tax is crumbling fast, however. This year, China announced plans for a carbon tax. Many European countries with which the United States competes, including Germany, an export powerhouse, already have carbon taxes in addition to very high gasoline taxes.

In May, the World Bank reported that countries that either have carbon taxes or are scheduled to impose them account for 21 percent of global greenhouse emissions. If you add China, Brazil and other countries that are actively considering carbon taxes, the share goes up to more than 50 percent.

In his speech, President Obama said the United States must lead international efforts to combat climate change, calling for a global free trade in environmental goods and services and renewed negotiations on a global agreement to reduce carbon. The United States could breathe new life into these negotiations by announcing its commitment to a carbon tax harmonized with those of other nations.

A well-designed carbon tax is probably the single best tool for fighting catastrophic climate change and safeguarding the earth for future generations. It can also be a key component of tax reform and deficit reduction, both of which would enhance the nation's competitiveness. Much of the world is already heading for a carbon tax: the United States should get out in front and lead the way. As Mr. Gore recently blogged, “A tax on carbon is an idea whose time has come.”

To Explain the Fed, Choose a Vice

The search for the best metaphor to describe the tapering of the Federal Reserve's monthly bond purchases later this year rolled forward on Friday.

The latest contestant is the Richmond Fed president, Jeffrey Lacker.

“The Federal Reserve is not only leaving the punch bowl in place, we're continuing to spike the punch, though at a decreasing rate over the next year,” Mr. Lacker said.

This was reminiscent of Thursday's best effort, which also invoked an addictive vice.

“It seems to me,” said Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, “the chairman said we'll use the patch - and use it flexibly - and some in the markets reacted as if he said ‘cold turkey.' ”

(Mr. Lacker was riffing on a fa mous description of central banking by a former Fed chairman, William McChesney Martin. The job, Mr. Martin said, is “to take away the punch bowl just as the party gets going.”)

The point that Fed officials are trying to make is mathematically straightforward. Since December, the Fed has expanded its holdings of Treasury securities and mortgage-backed securities by $85 billion a month. Starting later this year, perhaps in September, the Fed is going to buy less each month.

But â€" this is the key â€" the Fed will still be expanding its portfolio. More alcohol! More nicotine! More stimulus for the American economy!

It is relevant at this point to note that neither Mr. Lacker nor Mr. Lockhart is among the strongest supporters of the Fed's efforts. The supporters tend to favor metaphors less freighted with negative connotations.

Consider the choice of the chairman, Ben S. Bernanke:

“To use the analogy of driving an automobile, any slowing in the pace of purchases will be akin to letting up a bit on the gas pedal as the car picks up speed, not to beginning to apply the brakes,” he said last week.

Ah, that's much more dignified. The Fed as designated driver rather than enabler.

Except, of course, that markets didn't get Mr. Bernanke's point, which is the reason we are now enduring the other metaphors.

The Return on College, Around the World

As my colleague Eduardo Porter wrote this week, there are major returns from going to college. This is true around the world, but it is especially true in the United States.

According to a report released this week by the Organization for Economic Cooperation and Development, across the developed world the average person who has graduated from college (either two-year or four-year) and has any earnings makes about 57 percent more than a counterpart with no more than a high school education. In the United States, the comparable earnings premium is 77 percent.

Source: Organization for Economic Cooperation and Development.

Only four O.E.C.D. member countries - Chile, Brazil, Hungary and Slovenia - have a higher earnings premium. (The premiums are higher, I should note, if you look only at the universe of people with four-year degrees; across the O.E.C.D., the premium is 68 percent, and in just the United States, it's 84 percent.)

The chart above also shows the earnings penalty paid by people who don't have high school diplomas. And just as American workers are rewarded unusually well for getting tertiary education, they are penalized unusually harshly for not completing secondary education. The average worker with earnings in the O.E.C.D. who didn't complete high school makes 76 percent of what the average high school graduate with earnings makes. In the United States, that share is 64 percent.

Now you might think that since the incentives to become more educated are substantially higher in the United States, then college graduation rates would also be higher in the United States. But in fact, while the United States had one of the highest college attainment rates in 2000, it has since fallen behind in the rankings.

Source: Organization for Economic Cooperation and Development.

Our graduation rates have risen, but rates have risen much more in other rich countries. In 2000, 38 percent of 25- to 34-year-olds in the United States had tertiary education (fourth place among countries tracked by the O.E.C.D.); in 2011, the share was 42 percent (11th place among O.E.C.D. countries, 12th place if you count a Russia, a nonmember country that the O.E.C.D. tracks).

Of course, there are other factors that affect college graduation rates besides the higher wage you get once you have the degree, including how expensive it is to enroll. And the private cost of going to college is much greater in the United States than the most other developed countries, which more heavily subsidize higher education.

In fact, as a special O.E.C.D. report on education in the United States notes:

In the United States, the public-private balance of expenditure on tertiary education is nearly the reverse of the average across other OECD countries. In the United States, 36% of expenditure on higher education come from public sources, and 64% come from private sources . Across all OECD countries, 68% of expenditure on tertiary education come from public sources, while 32% come from private sources.

You could argue that with the private returns so high to attending college, maybe the United States government is right not to provide more subsidies for higher education. But here's the thing: the public returns to college-going are also huge in the United States, higher than they are in almost every other O.E.C.D. country.

Here's a chart showing both the public and private returns of tertiary education for the average man in each developed country.

Source: Organization f or Economic Cooperation and Development.

As you can see, the average return to taxpayers is $230,722 in the United States, versus less than half that, $104,737, across the developed world.

In other words, there should be strong monetary incentives not only for individual Americans to go to college, but also for taxpayers to help students actually graduate.

The Return on College, Around the World

As my colleague Eduardo Porter wrote this week, there are major returns from going to college. This is true around the world, but it is especially true in the United States.

According to a report released this week by the Organization for Economic Cooperation and Development, across the developed world the average person who has graduated from college (either two-year or four-year) and has any earnings makes about 57 percent more than a counterpart with no more than a high school education. In the United States, the comparable earnings premium is 77 percent.

Source: Organization for Economic Cooperation and Development.

Only four O.E.C.D. member countries â€" Chile, Brazil, Hungary and Slovenia â€" have a higher earnings premium. (The premiums are higher, I should note, if you look only at the universe of people with four-year degrees; across the O.E.C.D., the premium is 68 percent, and in just the United States, it’s 84 percent.)

The chart above also shows the earnings penalty paid by people who don’t have high school diplomas. And just as American workers are rewarded unusually well for getting tertiary education, they are penalized unusually harshly for not completing secondary education. The average worker with earnings in the O.E.C.D. who didn’t complete high school makes 76 percent of what the average high school g! raduate with earnings makes. In the United States, that share is 64 percent.

Now you might think that since the incentives to become more educated are substantially higher in the United States, then college graduation rates would also be higher in the United States. But in fact, while the United States had one of the highest college attainment rates in 2000, it has since fallen behind in the rankings.

Source: Organization for Economic Cooperation and Development.

Our graduation rates have risen, but rates have risen much more in other rich countries. In 2000, 38 percent of 25- to 34-year-olds in the United States had tertiary education (fourth place among contries tracked by the O.E.C.D.); in 2011, the share was 42 percent (11th place among O.E.C.D. countries, 12th place if you count a Russia, a nonmember country that the O.E.C.D. tracks).

Of course, there are other factors that affect college graduation rates besides the higher wage you get once you have the degree, including how expensive it is to enroll. And the private cost of going to college is much greater in the United States than the most other developed countries, which more heavily subsidize higher education.

In fact, as a special O.E.C.D. report on education in the United States notes:

In the United States, the public-private balance of expenditure on tertiary education is nearly the reverse of the average across other OECD countries. In the United States, 36% of expenditure on higher education come from public sources, and 64% come from private sources. Across all OECD countries, 68% of expenditure on tertiary education come from public sources, while 32% come! from pri! vate sources.

You could argue that with the private returns so high to attending college, maybe the United States government is right not to provide more subsidies for higher education. But here’s the thing: the public returns to college-going are also huge in the United States, higher than they are in almost every other O.E.C.D. country.

Here’s a chart showing both the public and private returns of tertiary education for the average man in each developed country.

Source: Organization for Economic Cooperation and Development.

As you can see, the average return to taxpayers is $230,722 in the United States, versus les than half that, $104,737, across the developed world.

In other words, there should be strong monetary incentives not only for individual Americans to go to college, but also for taxpayers to help students actually graduate.

To Explain the Fed, Choose a Vice

The search for the best metaphor to describe the tapering of the Federal Reserve’s monthly bond purchases later this year rolled forward on Friday.

The latest contestant is the Richmond Fed president, Jeffrey Lacker.

“The Federal Reserve is not only leaving the punch bowl in place, we’re continuing to spike the punch, though at a decreasing rate over the next year,” Mr. Lacker said.

This was reminiscent of Thursday’s best effort, which also invoked an addictive vice.

“It seems to me,” said Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, “the chairman said we’ll use the patch â€" and use it flexibly â€" and some in the markets reacted as if he said ‘cold turkey.’ ”

(Mr. Lacker was riffing on a famous description ofcentral banking by a former Fed chairman, William McChesney Martin. The job, Mr. Martin said, is “to take away the punch bowl just as the party gets going.”)

The point that Fed officials are trying to make is mathematically straightforward. Since December, the Fed has expanded its holdings of Treasury securities and mortgage-backed securities by $85 billion a month. Starting later this year, perhaps in September, the Fed is going to buy less each month.

But - this is the key - the Fed will still be expanding its portfolio. More alcohol! More nicotine! More stimulus for the American economy!

It is relevant at this point to note that neither Mr. Lacker nor Mr. Lockhart is among the strongest supporters of the Fed’s efforts. The supporters tend to favor metaphors less freighted with negative connotations.

Consider the choice of the chairman, Ben S. Bernanke:

“To use the analogy of driving an automobile, any slowing in the pace of purchases will be akin to letting u! p a bit on the gas pedal as the car picks up speed, not to beginning to apply the brakes,” he said last week.

Ah, that’s much more dignified. The Fed as designated driver rather than enabler.

Except, of course, that markets didn’t get Mr. Bernanke’s point, which is the reason we are now enduring the other metaphors.

The Myriad Benefits of a Carbon Tax

Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

Few goals in Washington have more bipartisan support, at least in theory, than cleaning up the tax code. Republicans and Democrats say they ant a system that is simpler, fairer and more efficient. Put simply, they want a system with fewer special tax breaks and lower rates.

Yet one of the best ideas for advancing all of those goals - and also heading off catastrophic climate change â€" isn’t even on the table. I refer to a carbon tax, which would impose a price on emissions of carbon dioxide and other greenhouse gases.

Most climate experts concur that dangerous climate change is occurring at a more rapid rate than expected. They also agree that the deterioration in the earth’s climate is primarily a result of carbon emissions from fossil fuel consumption by humans. If you dispute the overwhelming scientific consensus about man-made climate change and the role of fossil fuel emissions, you should probably stop reading now. Evidence is unlikely to affect your opinions.

But if you accept this consensus, you should know that economists across the political spectrum agree that a carbon t! ax is the most effective way to discourage carbon consumption and lower the risks of catastrophic climate changes.

I am convinced by the environmental case for a carbon tax. But I want to make a broader argument: a carbon tax could be an engine for tax simplification, deficit reduction, less government regulation and even increased competitiveness.

To be sure, the environmental urgency alone is compelling. In May, atmospheric concentrations of carbon dioxide reached nearly 400 parts per million. When concentrations were last that high - more than three million years ago â€" humans had not yet appeared, the world was warmer by 3 to 4 degrees Celsius, and sea levels were 80 feet above where they are today.

United Nations negotiators have set a limit of 450 parts per million to prevent costly and irreversible changes in the earth’s climate. At current emission trends, the world will cross this limit in a matter of decades.

The anecdotal evidence of climate change is everywhere: melting Arctic ice, new migration patterns for plants and animals and extreme weather events including record droughts, heat waves, epic floods and super storms. The frequency, intensity and costs of such events are increasing at an alarming rate. Climate scientists have moved from the view that such events are consistent with climate change to the view that climate change significantly increases the odds of their occurrence.

Economists have long contended that a carbon tax is the most effective and simplest way to reduce carbon emissions. Conservative supporters include Gregory Mankiw, a former economic adviser to President George W. Bush, and George P. Shultz, who was secretary of state under President Reagan. Economic centrists include Alan Blinder of Princeton and Robert Frank of Cornell University. Further to the left are the Nobel laureate Joseph Stiglitz and Robert Reich, former secretary of labor. James Hansen, NASA’s former top climate scientist, is also a vocal champion of carbon taxes. So is former Vice President Al Gore, who has advocated carbon taxes for the last 35 years as the policy most liely to be successful in combating carbon emissions.

The beauty of a carbon tax is its market-based simplicity. Economists since Adam Smith have insisted that prices are by far the most efficient way to guide the decisions of producers and consumers. Carbon emissions have an “unpriced” societal cost in terms of their deleterious effects on the earth’s climate. A tax on carbon would reflect these costs and send a powerful price signal that would discourage carbon emissions.

Producers and consumers would adjust their behavior in response to this signal in ways that are most efficient for them. And these efficient micro decisions would support efficient societal outcomes.

There’s much debate about what the proper “social cost of carbon” might be, but there is no debate that carbon emissions are seriously underpriced. Any tax on carbon would be an important step in the right direction, and it could be gradually increased to give consumers and producers time to modify their de! cisions.

Without a tax, the government has to rely on second-best regulations to limit carbon emissions. Facing Congressional inaction and staunch opposition to a carbon tax, this week President Obama proposed regulations on carbon pollution standards for new and existing power plants using his executive authority under the Clean Air Act.

A carbon tax is also a cheaper and often more efficient way to reduce carbon emissions than subsidies for alternative fuels. Generous subsidies for biofuels have cost billions of dollars; by reducing the price of gasoline they may have perversely increased rather than decreased carbon emissions.

Other subsidies, like the production tax credit, have been successful at ramping up research, development and deployment of alternative energy technologies in recent years. Such subsidies would be even more effective in combination with a carbon tax that would make fossil fuels less price-competitve and would stimulate research on renewable and energy-saving technologies.

The Congressional Budget Office estimates that even a modest carbon tax could reduce both greenhouse emissions and the federal budget deficit. A tax of $20 per ton of carbon dioxide, which would translate to about 15 cents per gallon of gasoline, would reduce emissions by 8 percent and generate up to $1.2 trillion in tax revenues over 10 years.

None of this is controversial to economists. As Professor Mankiw remarked a few years ago, the basic argument for a carbon tax “is so straightforward as to be obvious.”

Politically, of course, it’s anything but obvious. Republicans and Democrats fear that a carbon tax would antagonize voters by raising the prices of products with fossil fuel content for everyone who uses them. Republicans worry that a carbon tax would be a source of government revenue to feed “big government spending.” Democrats worry that ! a carbon ! tax would be regressive.

Both objections are easy to address. The revenues from a carbon tax do not have to be used for more government spending; the tax’s burden on low-income families can be offset by targeted income support measures, like those used in other countries to offset the regressive effects of value-added taxes.

Adele Morris at the Brookings Institution estimates that diverting just 15 percent of the revenues from a $16-per-ton carbon tax would provide enough money to keep low-income households whole. The remaining money could be used to finance a substantial reduction in corporate tax rates and reduce deficits by $815 billion over 20 years. Government spending would not increase.

Put another way, a carbon tax can be a central pillar of tax reform and sound fiscal policy. If a carbon tax were used in part to replace other forms of taxation, it would be a major force for tax simplification. t may seem like a “liberal” initiative, because its core purpose is to slow climate change. But a carbon tax also bears a strong resemblance to the kind of flat, broad-based tax on consumption favored by many conservatives.

Opponents of a carbon tax, and of climate-change legislation in general, often assert that it would put the United States at a competitive disadvantage. They usually point to China, the world’s biggest emitter of greenhouse gases (the United States is in second place and not far behind).

The competitiveness objection to a carbon tax is crumbling fast, however. This year, China announced plans for a carbon tax. Many European countries with which the United States competes, including Germany, an export powerhouse, already have carbon taxes in addition to very high gasoline taxes.

In May, the World Bank reported that countries that either have carbon taxes or are scheduled to impose them account for 21 percent of global greenhouse emissions. If you add China, Brazil and other countries that are actively considering carbon taxes, the share goes up to more than 50 percent.

In his speech, President Obama said the United States must lead international efforts to combat climate change, calling for a global free trade in environmental goods and services and renewed negotiations on a global agreement to reduce carbon. The United States could breathe new life into these negotiations by announcing its commitment to a carbon tax harmonized with those of other nations.

A well-designed carbon tax is probably the single best tool for fighting catastrophic climate change and safeguarding the earth for future generations. It can also be a key component of tax reform and deficit reduction, both of which ould enhance the nation’s competitiveness. Much of the world is already heading for a carbon tax: the United States should get out in front and lead the way. As Mr. Gore recently blogged, “A tax on carbon is an idea whose time has come.”

A World of Rising Health Care Costs

Americans are used to hearing that health care will bust the budget. The Congressional Budget Office projected last year that Medicare, Medicaid and other government health programs would eat up 9.6 percent to 10.4 percent of the nation’s gross domestic product by 2037, crowding out many other vital programs.

But a new report from the Organization for Economic Cooperation and Development suggests that the United States is not the only country that will struggle to contain public spending on medical care. In fact, costs are likely to increase slightly less in the United States than in other industrialized countries and some big developing countries around the world.

Public spending on medical services has slowed much more sharply in other countrie since the financial crisis hit government budgets around the industrial world. Government health expenditures across the O.E.C.D. grew only 0.1 percent in both 2010 and 2011, on average, after growing 4.9 percent a year between 2000 and 2009. In Greece they plummeted more than a quarter over those two years. In Britain they contracted by 2 percent. In the United States, by contrast, government health spending grew 3.3 percent in 2010 and 2.2 percent in 2011.

Source: Organization for Economic Cooperation and Development Health Data 2013

But health spending is expected to pick up as the economy recovers. The organization lays out two! possible paths. In one, health care costs keep rising at the pace of the last decade or so - powered not only by growing incomes and the aging of the population but also by rapid medical inflation, technology advances and more intensive delivery.

Source: Organization for Economic Cooperation and Development

Along the other, unspecified policy changes - perhaps like the Affordable Care Act â€" manage to slow spending to what would be justified by aging and income only.

Source: Organization for Economic Cooperation and Development

If it is not contained, government spending on health will rise to almost 12 percent of G.D.P. on average across the 34 O.E.C.D. nations, from 5.5 percent in the second half of the last decade. In the United States it will rise to 13.2 percent from 7.1 percent.

And in some poor developing countries, it will rise even faster. In China, for instance, health spending would rise to 8.3 percent of G.D.P. in 2060 from 1.9 percent in the second half of the 2000s.

Budgets will be easier to meet if health spending is tamed. Under the assumption that this happens, the O.E.C.D.’s public budget for health care eats up only some 8 percent of the economy by 2060. In the United States it takes up 9.3 percent.

But nothing, it seems, will stop public spending on health care from rising.

Stronger U.S. Growth Ahead

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

While recent stock market gyrations betray investor concerns over the resilience of the recovery as the Fed contemplates the end of easy money, the prospects for growth in the United States look brighter not much further ahead. There are always risks and challenges that could derail an optimistic forecast â€" some of them are highlighted below â€" but four powerful forces coming together over the next year are poised to support stronger growth and job creation. These positive drivers are lasting benefits from immigration refrm, expanded energy production and exports, the long-awaited housing upturn, and an increased measure of certainty in the financial industry as the main elements of the postcrisis regulatory overhaul fall into place.

Immigration

The politics of immigration reform remain uncertain, but the economic benefits are clear and vast (a point made last week in this space by Simon Johnson).  People are the essential raw ingredient for America’s economy, and immigration reform means more of them will work and contribute to our society â€" in the sunlight rather than the shadows.

As estimated by the Congressional Budget Office, immigration reform would translate into job creation, business and household spending, and higher tax revenue that would offset attendant costs. The calculus improves over time, with the benefits widening as future gener! ations blend into and renew the United States. Immigration reform would allow more foreign graduates of our top universities (including my institution, the University of Maryland) to stay and contribute rather than leaving the country.

Past generations of immigrants played key roles in entrepreneurship and innovation in tech hot spots like Silicon Valley, and there is every reason to expect a similar dynamic going forward.  The political reality is that the benefits from high-skilled immigrants are connected to a policy that addresses all immigrants, not just those with degrees.  The economic positives are too big for policy makers to leave on the table.  And if nothing else, the demographic imperative of the future electorate provides an offset to present-day political qualms.  I see immigration reform as a bipartisan achievement for this Congress and an economic boon for the nation.

Energy

Expaded use of technologies like hydraulic fracturing, or fracking, and horizontal drilling for extraction of oil and natural gas have contributed to increased domestic energy production that has added to output and job creation. The immediate benefits are seen in the booming economies of shale-laden states like North Dakota, but Americans stand to gain more broadly from lower energy prices and from higher incomes generated by energy exports. While private-sector actions so far have been the key to unleashing the energy revolution, decisions by the federal government and individual states are likely to increase production and further strengthen the economy over the next several years.

The Obama administration has already approved expanded exports of natural gas, which in turn would be e! xpected t! o foster domestic production.  A crackdown on coal-fired power plants as part of the president’s climate action plan announced on Tuesday will add incentives to generate electricity with cleaner-burning fuels like natural gas. According to the 2013 Economic Report of the President (Figure 6-3 on page 196), the shift in this direction already accounted for 40 percent of the reduction in the nation’s carbon dioxide emissions from 2005 to 2012. Other policy decisions to allow increased natural gas production will be made at the state level. Even those states that have held fracking at bay, such as New York, seem likely to come around as environmental concerns are addressed.

As with immigration, the economic stakes are too high to ignore, with the possibility of hundrds of thousands of jobs and billions of dollars of tax revenue (these figures are from a study sponsored by interested parties but carried out by a reputable economic consulting firm and seem reasonable as an order of magnitude of the potential benefits).  An early indication of the economic attraction can be seen in California, where the State Assembly recently declined to move forward with anti-fracking legislation. 

Expanded oil-related activities involve similar economic considerations, though the politics are trickier because President Obama faces determined opposition from his political supporters to the expansion of drilling and the construction! of pipel! ines like the Keystone XL that would transport Canadian petroleum into the American refining and distribution system. Even so, the president in his climate address hinted that the pipeline would be approved, and presumably similar economic calculations would factor into other decisions, like speeding up federal approvals of drilling applications.  Expect such announcements to trumpet “unprecedented” (a favorite word of this White House) environmental safeguards.  But energy production will increase, with state and federal governments increasingly supportive rather than wary.

Housing

The signs of the housing revival are now widespread, with gains over the past year in home prices, sales, and construction starts for both single-family homes and apartment buildings (the Department of Housing and Urban Development provides a monthly update of housing information and administration policy efforts).  The foreclosure ate remains elevated nationally but has generally declined since the peak in early 2010, leaving fewer empty homes and distressed sales to hold down housing prices.  Rising home prices likewise have left fewer families underwater on their mortgages (owing more than their homes are worth) and thus a smaller number at risk of losing their homes.  

The uptick in housing demand from the gradual job market recovery will be joined by a powerful demographic trend, as millions of Americans who doubled up with roommates or stayed in their parents’ basements move out to form new households. To be sure, housing activity has not returned to the bubble levels seen before the financial crisis, and the recovery is proceeding unevenly across the country.  But the upswing is palpable and poised to continue.

Financial Sector Regulation

Finally, increased regulatory certainty will translate into a financial sector that more e! ffectivel! y fulfills its role of connecting the savings of Americans and others around the globe with productive investments. Lending conditions have eased since the financial crisis, but credit remains tight in parts of the economy, notably for small businesses. These hiccups are by far not a result of tighter regulation alone â€" and a new regulatory regime was badly needed after the financial crisis. But many of the provisions in the 2010 Dodd-Frank financial regulatory reform legislation required federal regulators to spell out regulations, and this vital work has lagged. 

The June 2013 progress report from the Davis Polk law firm reports that only 153 of 398 required Dodd-Frank rules have been completed while 128 have ot yet even been proposed for comments. Still, important progress has been made, notably in setting up the Consumer Financial Protection Bureau and bringing greater transparency to derivatives trading (including work to improve derivatives markets begun at the New York Fed under Timothy Geithner before he became Treasury secretary in early 2009). 

Financial firms might not like the added regulations (and whether any such complaints are justified is a topic for the future), but they will adapt once the rules of the road are clear. By next year, regulators will have spelled out additional rules for derivatives activity, bank capital requirements, the enhanced prudential regime for large banks and other systemically important financial institutions, and possibly the Volcker Rule that will determine allowable bank activities.  The Federal Deposit Insurance Corporation is making progress putting together its new approach to dealing with the failure of systemic financial institutions.

Not eve! ry rule w! ill be settled, but considerable progress is near â€" more than is apparent than from a simple count of outstanding regulations.  Some of the Dodd-Frank provisions could stand to be improved (and I am co-director of a project aimed at doing just that), but having the main ones finally in place will help relieve lingering credit market strains and provide a meaningful boost to the financial sector and the overall economy.

Other Factors

To be sure, key economic challenges remain to be tackled. Tax reform could contribute to economic growth and simplify the tax code while maintaining progressivity. Entitlement reform is needed as part of an approach to addressing the government’s looming fiscal imbalance.  The start-up of the Affordable Care Act looks rocky and its long-term effects remain uncertin. Drag from chronic ills in Europe and the possibility of a slowdown in China could likewise affect the United States.

All of those risks are out there and more. But the four positives of immigration, energy, housing, and financial reform represent powerful forces that will boost the economy over the next year and beyond.  A revival of solid growth after six years of recession and slow recovery would give Americans confidence in their prospects for finding a good job and moving up the economic ladder.  Better growth, moreover, would provide a more conducive political and social environment in which to tackle some of the longer-term economic challenges facing the United States. These possibilities make the policy decisions on immigration reform and energy all the more important.

Stronger U.S. Growth Ahead

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

While recent stock market gyrations betray investor concerns over the resilience of the recovery as the Fed contemplates the end of easy money, the prospects for growth in the United States look brighter not much further ahead. There are always risks and challenges that could derail an optimistic forecast â€" some of them are highlighted below â€" but four powerful forces coming together over the next year are poised to support stronger growth and job creation. These positive drivers are lasting benefits from immigration refrm, expanded energy production and exports, the long-awaited housing upturn, and an increased measure of certainty in the financial industry as the main elements of the postcrisis regulatory overhaul fall into place.

Immigration

The politics of immigration reform remain uncertain, but the economic benefits are clear and vast (a point made last week in this space by Simon Johnson).  People are the essential raw ingredient for America’s economy, and immigration reform means more of them will work and contribute to our society â€" in the sunlight rather than the shadows.

As estimated by the Congressional Budget Office, immigration reform would translate into job creation, business and household spending, and higher tax revenue that would offset attendant costs. The calculus improves over time, with the benefits widening as future gener! ations blend into and renew the United States. Immigration reform would allow more foreign graduates of our top universities (including my institution, the University of Maryland) to stay and contribute rather than leaving the country.

Past generations of immigrants played key roles in entrepreneurship and innovation in tech hot spots like Silicon Valley, and there is every reason to expect a similar dynamic going forward.  The political reality is that the benefits from high-skilled immigrants are connected to a policy that addresses all immigrants, not just those with degrees.  The economic positives are too big for policy makers to leave on the table.  And if nothing else, the demographic imperative of the future electorate provides an offset to present-day political qualms.  I see immigration reform as a bipartisan achievement for this Congress and an economic boon for the nation.

Energy

Expaded use of technologies like hydraulic fracturing, or fracking, and horizontal drilling for extraction of oil and natural gas have contributed to increased domestic energy production that has added to output and job creation. The immediate benefits are seen in the booming economies of shale-laden states like North Dakota, but Americans stand to gain more broadly from lower energy prices and from higher incomes generated by energy exports. While private-sector actions so far have been the key to unleashing the energy revolution, decisions by the federal government and individual states are likely to increase production and further strengthen the economy over the next several years.

The Obama administration has already approved expanded exports of natural gas, which in turn would be e! xpected t! o foster domestic production.  A crackdown on coal-fired power plants as part of the president’s climate action plan announced on Tuesday will add incentives to generate electricity with cleaner-burning fuels like natural gas. According to the 2013 Economic Report of the President (Figure 6-3 on page 196), the shift in this direction already accounted for 40 percent of the reduction in the nation’s carbon dioxide emissions from 2005 to 2012. Other policy decisions to allow increased natural gas production will be made at the state level. Even those states that have held fracking at bay, such as New York, seem likely to come around as environmental concerns are addressed.

As with immigration, the economic stakes are too high to ignore, with the possibility of hundrds of thousands of jobs and billions of dollars of tax revenue (these figures are from a study sponsored by interested parties but carried out by a reputable economic consulting firm and seem reasonable as an order of magnitude of the potential benefits).  An early indication of the economic attraction can be seen in California, where the State Assembly recently declined to move forward with anti-fracking legislation. 

Expanded oil-related activities involve similar economic considerations, though the politics are trickier because President Obama faces determined opposition from his political supporters to the expansion of drilling and the construction! of pipel! ines like the Keystone XL that would transport Canadian petroleum into the American refining and distribution system. Even so, the president in his climate address hinted that the pipeline would be approved, and presumably similar economic calculations would factor into other decisions, like speeding up federal approvals of drilling applications.  Expect such announcements to trumpet “unprecedented” (a favorite word of this White House) environmental safeguards.  But energy production will increase, with state and federal governments increasingly supportive rather than wary.

Housing

The signs of the housing revival are now widespread, with gains over the past year in home prices, sales, and construction starts for both single-family homes and apartment buildings (the Department of Housing and Urban Development provides a monthly update of housing information and administration policy efforts).  The foreclosure ate remains elevated nationally but has generally declined since the peak in early 2010, leaving fewer empty homes and distressed sales to hold down housing prices.  Rising home prices likewise have left fewer families underwater on their mortgages (owing more than their homes are worth) and thus a smaller number at risk of losing their homes.  

The uptick in housing demand from the gradual job market recovery will be joined by a powerful demographic trend, as millions of Americans who doubled up with roommates or stayed in their parents’ basements move out to form new households. To be sure, housing activity has not returned to the bubble levels seen before the financial crisis, and the recovery is proceeding unevenly across the country.  But the upswing is palpable and poised to continue.

Financial Sector Regulation

Finally, increased regulatory certainty will translate into a financial sector that more e! ffectivel! y fulfills its role of connecting the savings of Americans and others around the globe with productive investments. Lending conditions have eased since the financial crisis, but credit remains tight in parts of the economy, notably for small businesses. These hiccups are by far not a result of tighter regulation alone â€" and a new regulatory regime was badly needed after the financial crisis. But many of the provisions in the 2010 Dodd-Frank financial regulatory reform legislation required federal regulators to spell out regulations, and this vital work has lagged. 

The June 2013 progress report from the Davis Polk law firm reports that only 153 of 398 required Dodd-Frank rules have been completed while 128 have ot yet even been proposed for comments. Still, important progress has been made, notably in setting up the Consumer Financial Protection Bureau and bringing greater transparency to derivatives trading (including work to improve derivatives markets begun at the New York Fed under Timothy Geithner before he became Treasury secretary in early 2009). 

Financial firms might not like the added regulations (and whether any such complaints are justified is a topic for the future), but they will adapt once the rules of the road are clear. By next year, regulators will have spelled out additional rules for derivatives activity, bank capital requirements, the enhanced prudential regime for large banks and other systemically important financial institutions, and possibly the Volcker Rule that will determine allowable bank activities.  The Federal Deposit Insurance Corporation is making progress putting together its new approach to dealing with the failure of systemic financial institutions.

Not eve! ry rule w! ill be settled, but considerable progress is near â€" more than is apparent than from a simple count of outstanding regulations.  Some of the Dodd-Frank provisions could stand to be improved (and I am co-director of a project aimed at doing just that), but having the main ones finally in place will help relieve lingering credit market strains and provide a meaningful boost to the financial sector and the overall economy.

Other Factors

To be sure, key economic challenges remain to be tackled. Tax reform could contribute to economic growth and simplify the tax code while maintaining progressivity. Entitlement reform is needed as part of an approach to addressing the government’s looming fiscal imbalance.  The start-up of the Affordable Care Act looks rocky and its long-term effects remain uncertin. Drag from chronic ills in Europe and the possibility of a slowdown in China could likewise affect the United States.

All of those risks are out there and more. But the four positives of immigration, energy, housing, and financial reform represent powerful forces that will boost the economy over the next year and beyond.  A revival of solid growth after six years of recession and slow recovery would give Americans confidence in their prospects for finding a good job and moving up the economic ladder.  Better growth, moreover, would provide a more conducive political and social environment in which to tackle some of the longer-term economic challenges facing the United States. These possibilities make the policy decisions on immigration reform and energy all the more important.

When Fed Transparency Fails, Go Zen

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Last week, when the markets began roiling in reaction to statements by Ben S. Benanke, the Federal Reserve chairman, I heard the former Dallas Fed president Bob McTeer wonder if this might have been a good time for the Fed chief to say less, not more.  At the time, I thought that was wrong.  If you’ve got a policy of trying to be transparent, it looks conspicuous and worrisome if you stop trying.

But after watching recent events, I’m beginning to think Mr. McTeer had a point.  More than transparency, the issue is thatbecause their decisions are going to be influenced by incoming data, Mr. Bernanke is able to say “what” but not “when.”  That is, he can say: at some point we’re going to start unwinding … can’t say when … probably pretty soon … though maybe not, if the data turns.

That message has done more harm than good.  Everyone knows that the Fed cannot be in full-bore stimulus mode forever.  That markets reacted badly to that “news” may seem strange, but the volatility is more related to when, not what.  And since he can’t say when, there’s no new information in there, expect that “when” is maybe closer than you thought.

Perhaps that last part is somehow useful, but I agree with another Fed bank president, Narayana Kocherlakota of Minneapolis, who “said that the lack of ! clarity is causing investors to overreact,” The Washington Post reported.

“The questions about the front end are really questions about the back end,” he said. “What is economically a minor tweak in monetary policy is seen as having big consequences.”

The first part of that quote, about how the front end is the back end, led me to this solution.  If Mr. Bernanke continues to feel compelled to speak out, he should do so in Zen terms, emulating more the “I Ching” than monetary textbooks.  Some suggestions:

On tapering: “Though the rains have led to a rich bounty, they must cease and allow the sun to naturally warm the fields.”

On rate increases: “That which was down, must eventually be up.  Bounds of zero must become unbound.”

On incoming data: “The wise man follows the path.  Though the path is unknown today, it will be revealed tomorrow … and then there’s revisions, of course.”

Yes, We Have No Inflation

Source: Bureau of Economic Analysis

Inflation remained sluggish in May. Prices continued to rise at the slowest pace in at least half a century, up just 1.1 percent over the previous year, the Bureau of Economic Analysis said Thursday. While some other measures of inflation are rising a little more quickly, the Federal Reserve regards this one as most accurate.

Slow inflation may sound like a good thing, but it’s not. Particularly not now.

Economic reserch suggests that inflation is best in moderation. Price increases lead to wage increases, which makes it easier to repay existing debts, like mortgages, and more attractive to incur new debts, like borrowing to start a company.

Inflation also functions as a kind of economic WD-40, easing shifts in the allocation of resources.  It is easier for struggling companies and industries to adjust by withholding cost-of-living increases than by seeking to impose wage cuts.

Perhaps most importantly, moderate inflation keeps the economy at a safe distance from deflation, or general price declines, which can freeze activity as would-be buyers wait for lower prices. Such a buffer would be particularly valuable now because the Fed is already stretching the limits of its ability to stimulate the econom! y, leaving the United States unusually vulnerable to any new shocks.

Ben S. Bernanke, the Federal Reserve chairman, fears deflation. He insisted as an academic that central banks can and should ensure moderate inflation, and he has sought to live those lessons as a policy maker. Minimizing the risk of deflation has been a major motivation for the Fed’s stimulus campaigns, and perhaps their most successful achievement.

But he and other Fed officials have shown relatively few signs of concern lately. The Fed’s most recent policy statement, and its economic projections, both released last week, show that Fed officials expect the pace of inflation to incrase gradually.

In part, that is because they already are doing a great deal to prevent deflation. It also reflects the curious stability of inflation expectations in recent years, suggesting the Fed has convinced investors that it is willing to do more as necessary. Finally, there are technical reasons to think that the pace of inflation is probably not quite so low as the current reading, reflecting the imprecision of the process.

“There are a number of transitory factors that may be contributing to the very low inflation rate,” Mr. Bernanke said last week. “For example, the effects of the sequester on medical payments, the fact that nonmarket prices are extraordinarily low right now. So these are some things that we expect to reverse and we expect to see inflation come up a bit. If that doesn’t happen, we will obviously have to take some measures to address that. And we are certainly determine! d to keep! inflation not only â€" we want to keep inflation near its objective, not only avoiding inflation that’s too high, but we also want to avoid inflation that’s too low.”

The Case for Women

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Maesnagement and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The joke among insiders is that the initials of the International Monetary Fund actually stand for “it’s mostly fiscal,” a reference to the predilection of that organization to see all economic issues ultimately in terms of tax and expenditure policy.

In an incisive speech on Monday, Heidi Crebo-Rediker, the chief economist at the United States State Department, challenged th I.M.F. to understand that women are central to the process of economic growth and development - and to place this fact at the center of how it interacts with member countries. (The State Department has posted a full transcript of the speech, which, along with a subsequent discussion, were held at the Peterson Institute for International Economics, where I am a senior fellow; I was not involved in organizing the event).

By all indications, Ms. Crebo-Rediker will prevail in her discussions with the I.M.F., and this will be a very good thing. A more interesting question is how her points about the rising economic and political power of â€" and opportunities for â€" women will play out in the United States.

At the event on Monday, far from pushing back against any of Ms. Crebo-Rediker’s suggestions, Minouche Shafik, deputy managing director at the fund, welcomed the approach and emphasized that the I.M.F. had already taken steps ! in this direction. It makes no sense to bias tax policy against women who work, yet that is what happens in a number of countries as Ms. Shafik emphasized (as an example, see this discussion of what is known as the marriage penalty in the United States). And expenditure policy can also make a big difference - think about parental leave or affordable and high-quality child care. By some estimates (based on Australian data), a 50 percent reduction in the cost of child care can increase the labor supply of young mothers by 6.5 to 10 percent.

Other policies that discourage labor force participation of women should also be assessed in I.M.F. reports, including measures that reflect whether women have full access to all levels of education and whether they can move up to positions of the highest responsibility. Getting more women into jobs is especially important for countries with low growth and aging demographcs - among other things, it would help sustain the viability of many pension systems.

Women work hard everywhere. The question is in part whether this work is remunerated and picked up in official gross domestic product statistics. But the bigger issue is whether women have access to all available opportunities.

At the event, Carly Fiorina, former head of Hewlett-Packard and a former Republican senatorial candidate in California, stressed the fundamental injustice behind denying women opportunities. All problems become more manageable, Ms. Fiorina asserted, when women are allowed to exercise their full potential and to become more involved in management - whether this be public health (for which maternal health and education consistently prove crucial), managing savings and investment (e.g., the microcredit movement built around responsible women) and running big global companies (unfortunately, women are still in a small minority on corporate boards in the United States and most other pl! aces).

Ms. Crebo-Rediker also has good timing in calling for the I.M.F. to take these issues more seriously. In Japan, the potential importance of increasing women’s labor-market participation has been clear for at least 20 years, and this is a prominent goal of the new Abe administration (supported by the I.M.F.). However, progress has been slow.

Similarly, southern Europe could get a great boost from increasing opportunities for women; this would be a smart way to apply the general notion of “structural reform.” Caroline Freund, a colleague at the Peterson Institute, pointed out this could also help the troubled economies of North Africa (as the World Bank noted in this 2003 report and in the more recent “Opening Doors: Gender Equality and Development in the Middle East and North Africa“).

How does increasing the opportunities for women play politically? Ms. Fiorina offered the most plausible explanation regarding why there is resistance: this is about power. No one likes to give up power, and in some societies the rise of women’s rights seems threatening to people (presumably men) who are in entrenched positions. Ms. Fiorina struck a chord with the audience when she asserted that the bigger obstacle is that not enough people are outraged at the lack of full rights for women in many countries.

But this raises a fascinating question for modern American politics. Can Ms. Fiorina or other Republicans persuade more women to support them at the polls?

In the United States context, there has been a gender gap between Democrats and Republicans at least since the 1980s - although others see the origins of this in the 1970s (as Nate Silver did in a 2012 analysis for The New York Times). A survey of attitudes from the Pew Research Center suggests that women and men disagree on some key party-line issues, including how much support the government should provide to older and younger Americans, on whether we do enough to protect the environment and on marriage equality.

While we do not have accurate exit-poll data before 1972, there are strong indications that women have not always voted Democratic. Women got the right to vote at the national level when the 19th Amendment became law in August 1920 (I like this timeline, which points out that many American women had the right to vote before they lost it, at least in some states.)

From the vailable evidence, it seems clear that women voted for Hoover and Eisenhower more than did men. According to Jo Freeman, “Hoover was so popular that he became known as ‘the woman’s candidate.’”

After Hoover, there was not much difference in female-male political preferences until 1952, when “polls of voters done before and after that election found women were 5 percent more likely to vote for Eisenhower than were men, though both gave him a majority.”

Again, I’m quoting from the Freeman essay, which goes on to say: “Historically, it was the Republican Party that was the party of women’s rights, and the Democratic Party that was the home of anti-feminism. After the new feminist movement rose in the 1960s-70s, the parties switched sides.”

If Ms. Crebo-Rediker is right, and I think she is, women are already becoming a stronger economic and political force in the United States, wi! th ever m! ore impact domestically and around the world.

The next head of the Federal Reserve may well be a woman - all the indications point to President Obama choosing Janet Yellen, the current vice chairwoman. I’m greatly encouraged by colleagues who contend that the choice of Ms. Yellen will improve monetary policy and make regulatory policy more effective.

Whoever becomes president would do well to pick a woman as secretary of the Treasury. I have long advocated that this position go to Sheila Bair, former head of the Federal Deposit Insurance Corporation. She would be most effective on fiscal and banking policy under either a Democratic or a Republican presidency.

In fact, it is quite likely that the next president of the United States will be a woman - perhaps Hillary Clinton, Ms. Crebo-Rediker’s former boss, or perhaps someone else. In any case, the next administration will, I hope, promote a larger number of distinguished women to prominent positions of national leadership.

And thee women and their colleagues can push on an open door at the I.M.F. - currently headed by a woman, Christine Lagarde. he fund and other organizations should be encouraged to emphasize the importance of female opportunities, representation and participation for economic development around the world.